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Investing.com -- Federal Reserve Governor Michael S. Barr shed light on the evolving relationship between artificial intelligence (AI), fintech companies, and banks during his address at the Federal Reserve Bank of San Francisco. Barr emphasized the potential of generative artificial intelligence (Gen AI) in banking and how partnerships between banks and fintech firms could expedite the integration of this technology.
According to the governor, banks have been cautious about utilizing Gen AI due to the current state of the technology and the highly regulated environment of banking. However, he pointed out that Gen AI holds significant potential to transform banking, provided that associated risks are managed appropriately. Barr suggested that the increasing advancements in Gen AI could soon make it a competitive necessity in the banking sector.
Barr mentioned that fintech companies are well-positioned to integrate Gen AI into their products and services. Banks, possessing valuable customer behavior data, can optimize Gen AI models. He argued that competition and cooperation between banks and fintechs could stimulate innovation and hasten the integration of Gen AI into banking.
The governor also highlighted the potential benefits of Gen AI for consumers and businesses, such as improved, cheaper, and faster financial services. However, he stressed the importance of banks, fintechs, and regulators playing their parts in ensuring that the risks associated with Gen AI are managed.
Barr further elaborated on the reasons why Gen AI has not been widely integrated into banking yet. He cited factors such as the technology’s immaturity, concerns about information security, and the lack of business processes at banks optimized for Gen AI usage. Despite these challenges, Barr expressed optimism that these are surmountable issues.
The governor also discussed the role of fintech companies in driving Gen AI adoption in financial services. He noted that fintech firms, being younger companies with a clean tech stack, can integrate new technology more easily into their infrastructure. These firms also have financial and time constraints that drive them to find effective, quick solutions, often involving innovative uses of cutting-edge technology.
Barr concluded his address by emphasizing the shared responsibility of banks, fintechs, and regulators in managing Gen AI risks. He stressed the importance of understanding the technology, reviewing and updating existing standards on model risk management, and exploring ways to deploy the technology. He underlined the need for curiosity, education, investment, and leadership from all stakeholders to ensure the benefits of Gen AI are realized and the risks are effectively managed.
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